May 12, 2014

There's no questioning that Apple has been a disruptive force in the market. Whether it's digital cameras, GPS devices, or the original Walkman, Apple has completely changed the way we use electronic devices, bludgeoning many companies in the process. And they've clearly disrupted the way in which we buy music. While iTunes brought order to a chaotic world of illegal downloads, together with Amazon, it's a major reason why Tower Records is no longer here.

But in each of those cases, Apple was the disrupter, not the company being disrupted. The one possible exception was when they disrupted the market for standalone iPods by adding that feature to the iPhone, but they were moving customers to a more expensive device in the process, so it wasn't a terribly difficult move.

But disrupting from within is not easy. Anyone who's ever tried to bring out innovative new products at an existing market leader can attest to that.

When I was with Crowd Fusion, one of our clients was Tecca, a startup funded by Best Buy. Tecca was a mobile-first content provider with great video and blog content on consumer electronics. They also provided a barcode scanner, which returned reviews and pricing from BestBuy, Amazon and Google Products.

Tecca could have been a great differentiator for Best Buy, driving greater value for customers who come into their stores. But, although they had incubated the company, Best Buy could never fully embrace it. After all, users of the app might see that prices were lower at Amazon.

And that's the dilemma faced by all legacy companies, when trying to disrupt their own business. Too many people have their bonuses tied to preventing that disruption. And that could be the challenge for Apple and iTunes.

For several years, analysts, bloggers and consumers have been waiting for Apple to jump into the streaming audio market with a Spotify-like offering. And, just like the annual Gene Munster predictions of an imminent Apple TV, their streaming audio has so far been a unicorn. They've danced around the edges (iTunes Radio) but held off on building what seemed the obvious next step. And while there are many strong arguments against building an Apple television (low-margin business where consumers only replace a device once a decade), the arguments for streaming audio are much more compelling. So, what's held Apple back?

The reality is that iTunes today is a $28 Billion per year business for Apple (using estimates from Horace Dediu). And while the largest part of that is the App Store, iTunes music is still a multi-billion dollar business.

Now, I don't know how much the average iTunes user spends on audio downloads per month, but my guess is that Apple would willingly trade those users for a predictable $10/month subscription service. That's not what makes them worry.

But when you look at the streaming audio market, most of the companies in that space have used the freemium model. Take Spotify, for example. As of a year ago, Spotify had roughly 6mm paying customers and 24 mm active users. So, they've been able to convert about a quarter of their users from free to paid. As freemium services go, that's pretty impressive. But, for a company like Apple, with billions of iTunes transactions potentially at risk, that can be very scary. The idea that millions of iTunes users might stop paying for downloads, and instead use a free streaming service could mean huge disruption to Apple's iTunes business.

The freemium model makes sense for consumer subscription products, as it's an inexpensive way to drive brand awareness. How would Spotify attract an audience if it required a subscription? Instead, by bringing new users on board for free, they hope to upgrade some of those users to paid over time.

Beats Music took a different approach. They decided to buck the trend and not go freemium. Instead, they used a "free trial" approach, where new users could sign up for a trial of the service, but would then have to either subscribe or quit after the trial ends. Unlike Spotify and other rivals, Beats could rely upon its brand to drive awareness, while also partnering with other companies to spur trials. At launch, Beats Music partnered with AT&T, so users could simply add the service to their monthly mobile bill.

And that's why Beats Music is not nearly as scary for Apple as Spotify, Rhapsody or even YouTube. There's no free option with Beats. And, because they're buying an existing business, it will be more difficult for managers throughout Apple to sabotage it, even if they do see it as a threat.

I'm still not very bullish on this deal. As I'd previously written, it doesn't make a lot of sense to me. But it could be that Apple management, realizing how difficult it might be to disrupt iTunes from within, saw this as a less difficult approach.

May 10, 2014

When the news first hit of a potential Apple acquisition of Beats, it didn't make a lot of sense to me. Having given it another day to think about it, it still makes little sense to me.

There are two core parts to the Beats business: hardware (headphones and speakers) and streaming audio. Let's take a look at each.

Hardware

Beats hardware products are headphones, earbuds and portable speakers. Their headphones and earbuds are not particularly innovative - they use the same basic design that other manufacturers have used for decades. Their portable speaker, the Beats Pill, is basically a me-too version of the Jawbone Jambox. Beats products are not of particularly high quality. I owned a pair of diddy beats earbuds. They had decent, but unspectacular sound quality. The left channel died about a month after the warranty expired, but that happens with many earbuds.

This is not a Google - Nest deal, where you're bringing on a team of design engineers who are rethinking everyday items. It's not Square, who have brought point-of-sale to the mobile device. There's no real innovation here. Instead, this is a company that has created a cool brand around decent quality products. Beats does offer a cachet of cool. At least for now.

But Apple doesn't need to rely on others to provide coolness to their products. Apple products are already cool. And while Apple's coolness seems to have staying power, Beats are more of a fashion statement for teens, and you can look at brands like Abercrombie to see how fleeting that position can be.

Streaming

Beats created what they hoped would be a Spotify killer.

The Beats Music service launched to great hype, but has struggled to gain traction. I have not used the service, so have to rely on reviews that I've read, but in a market crowded with entries, Beats did not particularly stand out. The UI got good marks, but the core functionality was not very different for that of Spotify, Slacker, Rdio or Google Play. It wouldn't seem that difficult for Jony Ive''s team at Apple to build a comparable service. Some tout the existence of contracts with the record companies as an asset, but all of those contracts will need to be reassigned or renegotiated, and I'd guess it wouldn't be too hard for Apple to strike comparable deals on their own.

Two days in and I'm still baffled

With $151 billion in the bank, the $3.2 billion deal is not a huge financial strain for Apple, but it is significantly more than they've paid for any other acquisition. And the deal itself still doesn't make much sense to me. Beats hardware is a bit of a fad that could collapse as fashions change. Their streaming service seems OK, but it's hardly unique. But Tim Cook and his team are smart and I'm sure there are things that I've not considered. But for now, this deal makes little sense to me.

May 09, 2014

There's lots of discussion of what Yahoo! should do with the proceeds of the Alibaba sale. Some are calling for a dividend (boring), while Josh suggests a bold move would be to buy a controlling stake in Twitter.

And while the core advertising business continues to drag, I don't see any simple deals that would really reverse that. So, while Yahoo should continue to make small, strategic technology deals, I'd look elsewhere for the big deals.

Yahoo still has a huge footprint in both Finance and Sports, so why not double-down on those? And two important, emerging opportunities for Yahoo come in Video and Mobile, so those need attention as well.

Assuming Yahoo has $10 Billion to go shopping with, who should they buy?

In the Finance space, there are a number of interesting content plays that could reenergize their Finance pages and give them some unique content. Stocktwits, the online community for active traders, provides the best insights into financial events as they happen. Just watch the StockTwits page for a tech company during their earning release and you’ll see what I mean. Estimize, who crowdsource earnings estimates, M&A rumors and now economic data, could provide an innovative reason to visit Yahoo pages. TheStreet.com has been rapidly building their video content and would be an attractive fit, provided they could convince Cramer to stay on board for a few years. Yahoo could probably acquire those three companies for around $350mm.

While ESPN has now surpassed Yahoo Sports in traffic (according to ComScore), Yahoo is a close second. It may not be ideal timing, but if I were Marissa, I’d give Jim Bankoff at Vox Media a call. While the new Ezra Klein-led Vox.com may not be a great fit, SB Nation would be a great addition, while Curbed could open up some new opportunities. If they couldn’t get SB Nation, I’d see if I could pry Deadspin from Gawker and would also take a look at Bill Simmons’ long form site Grantland. I might also look to pick up either Narrative Science or Automated Insights, both of which offer technology which automates short editorial articles from statistics. Yahoo already uses Automated Insights for personalized summaries of fantasy sports results, but could expand its use across multiple verticals.

Video is a big area of focus for Yahoo, and one where they’ve had success, though the numbers aren’t yet big enough to move the needle. If I were Yahoo, I’d look at Funny Or Die, or perhaps see if IAC might part with CollegeHumor.com in order to drive short-form video and bring more of an edginess to their offerings.

That leaves mobile and social. There’s a lot of interesting activity there. I think the valuations for SnapChat are too high, and I could see it going downhill after an acquisition, but maybe Yahoo could make a play for Whisper or Secret. And, of course, a content site like Buzzfeed or Distractify could drive a lot of social engagement on mobile and the desktop.

April 15, 2014

On the surface, this could make sense. Twitter has been looking to monetize its data, and simply being a wholesaler doesn't let that business scale. As Rob Passarella notes, the deal is a clear sign that Twitter is focused on its data business.

But the acquisition raises a few interesting questions.

Data aggregation platforms are typically most successful when they are independent. Aggregators thrive because they can be "Switzerland", neutral and unaffiliated with any providers. It's what makes acquisition of aggregators difficult. Once they are acquired, they lose that independence. I've seen this happen many times in the financial data business.

While many of these partners may be content to allow their data to flow through Twitter-owned Gnip, I can see some (Facebook/Instagram, Google/YouTube) looking to exit the service.

2. What will this mean for DataSift? Gnip competitor DataSift is the other leading provider of the Twitter firehose, along with Facebook, Tumblr, G+ and many others. Will Twitter still sell its firehose via DataSift? Will Gnip gain strategic advantages due to its new parent? And, will Google or Facebook to jump in with an offer to buy DataSift in response to Twitter's acquisition of Gnip?

May 19, 2013

Lots of great information out there on the Yahoo-Tumblr deal, but I keep seeing posts comparing Tumblr to Wordpress and referring to it as a "blogging platform".

While that might be technically accurate, just as you might still refer to Twitter as a "micro-blogging" platform, it reflects little understanding to how Tumblr is used today and why Yahoo is buying it.

First and foremost, Tumblr is a social platform. Users post media to Tumblr and it gets shared. A lot. If you look at their user numbers, it tells a lot of the story. As of April, 2013, Tumblr had 170 million users and 100 million "blogs". In other words, its usage is more like Twitter - where most people who are active on the platform both author/share as well as read content. Contrast that to a platform like Wordpress, where relatively few people author content, compared to the numbers who consume it.

The second key difference is demographics. A recent Pew internet study estimates that 13% of online users 18-29 use Tumblr vs only 5% of those 30-49. Yet Pew's cutoff at age 18 causes them to miss the key Tumblr demographic - teens and tweens, or to be more specific, female teens and tweens.

Another recent study from Garry Tan using Survata data from Y Combinator shows that of those age 13-18, Tumblr has stronger usage than Facebook.

Surveys and studies aside, I can just ask my 14-year-old daughter for insights. She doesn't use Facebook at all. While some of her friends have accounts, they rarely use them. "Facebook is for old people" according to them (perhaps validated by the fact that her grandmother is now on Facebook using the iPad she got for Christmas). She and her friends are active on Twitter, Skype, Tumblr and, of couse, texting.

If you ask her or her friends to name a blog platform, they couldn't tell you one. And they sure wouldn't consider Tumblr one. "Tumblr is for sharing cat gifs" was her response when I asked her about Tumblr.

So, what Yahoo is acquiring is not a blog platform. We should immediately stop the calls I've seen for all Yahoo blogs to switch over to being authored on Tumblr. Yahoo is acquiring a highly social platform that is used by (mostly female) millenials to share memes and funny images with friends.

That opens up many possibilities for Yahoo, none of which should involve slapping a bunch of banner ads on Tumblr pages.

As TechCrunch's Erick Shonfeld points out, "Tumblr is also an amazing testbed for new forms of social advertising. Yahoo can now go up against Twitter in that arena"

Adds Globe & Mail's Shane Dingman, "Tumblr's main value isn't its flexible blog template, it is designed to be a vector for viral sharing"

Tumblr is closer to Twitter or Facebook than it is to Wordpress, Posterous or other blogging platforms.

I don't know whether the Yahoo acquisition will ultimately be good for Tumblr (though it's a nice exit for David Karp and a win for the NYC startup scene). But what they are acquiring is a way to begin to enage a demographic that otherwise barely knows they exist. And if they are careful, and let the Tumblr team largely stay independent, they will probably learn more about social media and younger users than they could in any other way. And in keeping Tumblr away from Facebook, Microsoft and other potential suitors, they keep Yahoo relevant in a way that it's not been in years.

February 13, 2013

Today comes word that a potential buyer is exploring the purchase
of Time, Inc. from Time Warner (TWX). The Company has three main groups: News and
Sports (Time Magazine, CNN Money and Sports Illustrated ), Style &
Entertainment (People, InStyle and Entertainment Weekly) and Lifestyle (RealSimple,
Southern Living, MyRecipes.com and others). According to reports, the sale could
exclude three flagship brands: Time,
Sports Illustrated and Fortune, which would remain with Time Warner.

Who might the suitor be?

Obviously, there could be a private equity firm lining up
to bid, but that’s not too interesting, so I thought I’d suggest some potential
strategic acquirers.

That would make sense from the content/titles, and could see Jack Griffin doing it from an ego standpoint, but would be a challenge for them to absorb IMO. Assuming a price tag of $2-3 billion, it could cost nearly double Meredith's current market cap.

Disney (DIS) would make a lot of sense. They have the news
(ABC) and sports (ESPN) coverage in place and could certainly capitalize on
media and web opportunities around the style and entertainment business.

Hearst would find the titles would be hugely attractive, but
absorbing an acquisition this large would be a challenge.

Conde Nast/Advance Publications, publisher of Bon Appetit, Glamour and Vogue, would be a great home for the lifestyle and style brands, but may find a deal too large to absorb.

News Corp (NWS) is in the midst of splitting itself in two.
An acquisition here could diversify that publishing group, reducing its
reliance on newspapers and opening up more avenues for digital publishing.

Viacom (VIA) could see this as interesting way to build new
video and digital content around the style, entertainment and lifestyle
markets in the way that Time Warner's TMZ has found success.

Who am I missing? Who do you think might bid on Time? Add your ideas in the comments.

January 04, 2013

Over the holidays, my wife was discussing Pinterest with a
few family members.

I found it interesting that she viewed Pinterest as a “recipe
site”. Me, being the social media expert, jumped in -- “no, no, Pinterest is a
platform, like Twitter or Facebook” I explained.

Fast-forward a couple of weeks and looks like in some ways,
my wife was right (as usual). Pinterest this week announced the acquisition of Punchfork,
a recipe aggregator. And I think that
approach makes a lot of sense. Twitter still struggles to help new users
understand what it is and why it’s valuable. Most users simply read, rather
than posting. So, rather than just being a social scrapbook, Pinterest could be
well-served by developing a bunch of verticals and acquiring or partnering for
content.

Other obvious markets to pursue include fashion, home décor,
beauty, autos and travel. Those markets also have potential ecommerce
components, making it even more interesting.

What do you see as the next steps for Pinterest? Who might
their next acquisition targets be?

October 03, 2012

Rumours
are swirling this morning that Pearson (PSO) could consider putting its prize
asset, the Financial Times, on the selling block after appointing John Fallon
its new CEO, replacing Marjorie Scardino, who is stepping down after sixteen years in the role.

The FT is a unique asset in many ways. It’s one of the few paid
online news success stories, due largely to the fact that it’s mostly paid for
by companies, not individuals. It’s completely dominant in the UK; you can be
sure your content has been read by every UK banker by the time they get to
their desk in the morning. It has global reach and employs some top quality
journalists.

So, who should buy the FT?

The obvious buyers might include Bloomberg, Thomson Reuters (TRI) and News Corp (NWSA). While News Corp is
splitting off its news publishing assets into a new company, the combination of
the FT and Wall Street Journal would be hard for Rupert Murdoch to ignore. A
major European publisher like Axel Springer (SPR) would likely be interested as well. It's also possible someone like Reed Elsevier could jump in. Yet I don't see many other publishers getting involved. The FT would be a lot to swallow for a company like the NY Times in this market.

But an eventual buyer could come from outside the obvious
names. One city analyst quoted in the Guardian story suggests the FT could
get bids of as much as £1bn as a trophy buy:

“Who wouldn't want to own the FT.
Russian oligarchs, a wealthy Middle Eastern owner would get more status than
owning a football team.”

Whom do you think might be the best suitor for the FT? Add
your thoughts in the comments.

June 16, 2012

This week’s acquisition of enterprise social media provider Yammer by Microsoft (MSFT) for $1.2 billion raised a lot of eyebrows. While specific revenue figures are not available for Yammer, I’ve seen estimates of Yammer revenue in the $10-20 million range. Yammer peer Jive (NASD: JIVE) reported revenues of $77 million for the year ending 12/31/2011, with a 4th quarter run rate of nearly double that.

Clearly Microsoft didn’t buy Yammer based upon its direct revenue potential. Instead, the acquisition was an acknowledgement of where the market is heading, and how Microsoft desperately needs to reposition itself for the future.

For those who’ve never used it, Yammer is best thought of as “Twitter for the enterprise”. It’s a great way of sharing information among workgroups or departments. Microsoft, of course, has long dominated communications inside the enterprise, with Exchange and Outlook. But as communication shifts away from email, and as the enterprise becomes more mobile, that market position is at risk.

Microsoft today is at risk of losing the desktop to the iPad while the Office document market has seen inroads by Google and other cloud-based services. Installed software, upon which Microsoft’s empire was built, is slowly, yet steadily being displaced by SaaS models. They’ve struggled to gain a foothold in mobile. In many ways, their future seems dim.

While Yammer alone won’t reverse that course, it does provide an immediate platform for Microsoft to remain relevant in mobile communications within the enterprise. As more and more users rely upon devices that do not run Windows and sit outside the firewall, tools like Yammer give Microsoft a way to remain relevant.

There are many other ways in which Microsoft can play in this market. Its acquisition of Skype was one. The market for systems to allow the enterprise to manage today’s BYOD (bring your own device) world is wide open. And while, I’d initially thought RIM (NASD: RIMM) was best positioned to adapt its Blackberry Enterprise Server to the Mobile Device Management (“MDM”) space, their inability to recognize and adapt to market changes have left a huge opening for Microsoft. In fact, I wouldn’t be surprised to see Microsoft acquire an MDM provider like AirWatch or Zenprise in the near future.

The $1.2 Billion price tag may seem high for a company with low 8-figure revenue, but Microsoft is sending a clear message here that it understands the dramatic changes that mobile and the cloud are driving, and is looking for ways to remain relevant into the future.

February 08, 2012

Content Next, first acquired by Guardian Media in 2008, has been on the shopping block in recent months, as GMG looks to focus its operations.

Of all the rumored buyers (including AOL, Vox Media, WebMediaBrands, Dow Jones, SAY Media) this is likely the best possible result, both for readers and the Content Next team.

From the outside, it looks as though the two companies have very similar cultures. Both founded around the same time as independent blogs (by Om Malik and Rafat Ali), GigaOm has been able to remain solo, taking venture funding along the way.

The combined GigaOm - Content Next will be an impressive media company: